A new report by Morgan Stanley focuses on the valuation of consumer staples stocks around the globe. According to the report, consumer staples stocks are currently trading at a hefty premium to historical valuations.
The Numbers
Global consumer staples stocks are currently trading at a next twelve month price to earnings ratio (NTM P/E) of 21.9. This multiple is higher than the long-term average of 19.7 for the group since 1994. It is also higher than both the 10-year and 5-year average NTM P/E of 17.3.
Global consumer staples stocks are also currently trading at a 33 percent valuation premium to the MSCI World Index.
The Consumer Staples Select Sector SPDR ETF (NYSE: XLP) has outperformed the S&P 500 by more than 30 percent during the past decade.
The Charts
A chart of global consumer staples stock valuations shows these stocks are currently valued at their highest level since 2002, higher even than the pre-Financial Crisis peak in 2007.
The U.S. consumer staples sector shows a similar trend. While valuations are at their highest level since 2002, they are nowhere near the peak levels seen in the late 1990s.
Noteworthy Sub-Sectors
U.S. tobacco names are currently priced at particularly high valuations relative to historical levels. Recent tobacco P/E levels are at their highest point in more than 20 years.
Not all consumer sub-sectors are currently priced at historically high levels, however. U.S. beverage stocks remain valued below their 20-year average NTM P/E, although it’s important to note that they are currently at their highest valuation since the Financial Crisis.
Valuation Contraction
Not all consumer staple stocks have experienced multiple expansion in the past year.
The report mentions Hershey Co (NYSE: HSY) and Hain Celestial Group Inc (NASDAQ: HAIN) as two stocks that have experienced the largest multiple contraction during the past month.
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